Tonight on CNBC's Mad Money, Jim Cramer commented on (here) speculation that DragonWave (DRWI), a small but world-wide wireless networking company, might be a takeover target given Qualcomm's (QCOM) recent acquisition of Atheros (ATHR). Cramer's comment was "Make no moves...this is just something to watch." What does the Random Stock Walker think of this rumor?First, there's not a lot of data but, from what is available since the IPO, there is enough data to estimate a statistical model. The estimated model shows that DRWI is not a random walk being driven by pure market shocks. On the other hand, it is also not being driven by trends and cycles in the world economy. Rather, it is a company that is on its own growth path, what I call a "business as usual" (BAU) company. This isn't meant to be pejorative, just that the company is functioning in its own niche with a stock price that not only is affected by market shocks but also has its own positive growth dynamic. The step-ahead predictions of the BAU model (displayed above, click on the graphic to enlarge) are acceptable but clearly miss the shock-induced turning points.
DRWI has it's own growth path (dotted line above) that acts as an attractor for the stock price. The stock has had periods of being both under-valued (2008.5-2009.5) and over-valued (2009.5-2010.4). Right now, the stock is somewhat over-valued but very close to the attractor line.
For the future, DRWI can be expected to continue growing (the dotted lines above are the 98% bootstrap prediction intervals) but probably will not exceed the 2010.0 peak by very much, unless some market shock (like a takeover bid) comes along.
DRWI has it's own growth path (dotted line above) that acts as an attractor for the stock price. The stock has had periods of being both under-valued (2008.5-2009.5) and over-valued (2009.5-2010.4). Right now, the stock is somewhat over-valued but very close to the attractor line.
For the future, DRWI can be expected to continue growing (the dotted lines above are the 98% bootstrap prediction intervals) but probably will not exceed the 2010.0 peak by very much, unless some market shock (like a takeover bid) comes along.DISCLAIMER: I have a nephew by marriage who works for DragonWave. I do not own DRWI stock and have not talked with my nephew since hearing the potential takeover news on CNBC tonight. I have no insider information. Anyone who would buy or sell stocks based on the statistical analysis presented above would immediately be nominated for 2011's Greater Fool Award.
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